Of course, the $100,000 in cash will come in handy because if you win the dream home, be prepared for a hefty federal income tax bill and, depending on where you live, a state income tax bill which I have estimated in this post (this analysis excludes the multitude of other taxes such as any deed or transfer taxes and, most especially, the property tax which you pay year, after year, after year . . . well, you get the picture).

Overall, the federal income tax bill alone comes to a whopping $421,056. If you plan on keeping this home, best be prepared to take on a second job or take out a home-equity loan to pay Uncle Sam as the $100,000 in cash won’t cover it.

Calculating the state income tax owed is much more complicated. Tennessee does not have a general income tax (though they do tax interest and dividends). As a result, your tax bill will be determined in your home state. Unless you are fortunate enough to live in Tennessee or one of the other 8 states that do not levy a state income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming), then you will have a tax bill that is significantly greater than 0. We do not attempt to calculate the tax bill that would be owed if you live in the other 42 states.

Fortunately, HGTV does provide an escape hatch by offering $600,000 in cash in lieu of taking possession of the home. You also get to keep the $100,000 in cash and the $40,000 Lincoln for a total escape pot of $740,000. If the winner opts for this choice, they will take home at least $511,374 after paying federal income taxes of $228,626.

These numbers kind of makes you wonder who the real winner of this contest is--the contestant or the government? My suggestion would be take the cash-option money and run. One could outright buy a very, very nice home with the cash and have zero debt. If you have had your fill of paying taxes, you could mimic the Free-Staters and buy a house in the handful of America’s tax havens left (all in New Hampshire) where there are no state and local individual income taxes, no state or local sales taxes and very low (in some case no) local property taxes.

J. Scott Moody

Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.